Conversely, most individuals who end up serving as trustees lack the time, ability and experience to carry on day-to-day trust administrative functions without considerable assistance. Indeed, if a trustee is a financial novice, there is risk that the trust assets may not be properly invested and the future of the trust may be placed in jeopardy. Further, the trustee must keep careful, properly formatted trust accountings and must see to the preparation and filing of federal and state fiduciary income tax returns on an annual basis. Very few individuals have experience and expertise in trust accounting, trust investing and trust tax return preparation. Indeed, when fulfilled appropriately a trustee's responsibilities are quite time-consuming, and handling administration of a trust can be quite burdensome for an individual trustee.
Further complicating an individual trustee's life is the burden of dealing with trust beneficiaries in the making of discretionary distribution decisions. Beneficiaries may put substantial pressure on an individual trustee who is inexperienced as a trustee and may have neither the ability nor the mental stamina to deal with and make appropriate decisions with respect to distribution requests from beneficiaries.
Perhaps most significantly, an individual trustee has inherent limitations that come with being human. An individual trustee may become ill or incapacitated, may move across the country or may have his attention diverted to his own personal or business problems. Ultimately, any individual trustee will die. All of these events would effectively prevent the trustee from carrying out his duties as trustee.
Some individual trustees are not family members or friends but professionals, such as lawyers or accountants. Depending on his training or area of concentration, a lawyer or an accountant may have substantial knowledge and ability to carry out the role of trustee, and he may have a long-standing relationship with the testator or grantor and his family. In addition, an individual trustee such as a lawyer or accountant may also be aware of family dynamics and, thus, sensitive to family needs and the desires of the testator or grantor. However, while there are notable exceptions, most lawyers or accountants do not possess all of the abilities and qualities necessary to provide full-service trust administration. Few lawyers and accountants have "cutting edge" knowledge of financial markets, for example. Further, problems such as illness, incapacity or death apply to an individual trustee who is a professional just as much as to an amateur.
A bank trust department or trust company is an institution that is engaged in the business of acting as a trustee. Corporate trustees are advantageous in that they have access to a large amount of investment, accounting and tax return preparation resources, and are able to provide virtually all services necessary for comprehensive and successful trust administration. In addition, corporate trustees generally have substantial experience in the administration of trusts and are able to draw on that experience when facing the challenges presented by day-to-day trust administration. Additionally corporate trustees, given their internal checks and balances and audits, as well as the federal and state regulation and inspection to which they submit, present materially lower risks that beneficiaries will ever suffer a financial loss. Also, because of their experience and lack of family ties, corporate trustees are uniquely able to view beneficiaries objectively and make investment and distribution decisions impartially.
On the other hand, while corporate trustees are strong on the mechanics of trust administration, they are sometimes weaker than individual trustees when it comes to understanding the functioning and dynamics of particular families. Also, if a closely held business is involved, depending upon the type of business, a corporate trustee may not possess the ability to manage it.
William S. Villafranco is founder and president of Southwind Associates, an investment advisory firm in Woodcliff Lake, N.J., and is associate chairman of the editorial advisory board of Trusts & Estates magazine.